Dell (
DELL
) is known primarily for its product line of desktop and
notebook PCs, printers, and PC displays. Dell, currently the third
largest PC vendor in the world, primarily competes with HP (
HPQ
) and Acer (TPE:2353) at the top end of the PC market.
We currently have a
$19.25 Trefis price estimate for Dell's stock
, which is well ahead of market value. Notebooks & netbooks
constitute nearly 18% of our estimated value while desktops
contribute a mere 3%.
Over the past few years, Dell has lost notebook market share to
more innovative and better priced HP and Acer notebooks. We
project a gradual decline in the years ahead driven by the
following factors.
1. Loss of Share to HP and Acer
Dell has lost significant market share in the notebook &
netbook segment (18% in 2005 to 12.0% in 2009) to HP and Acer.
Declines will likely continue going forward due to continuing
competitive pressures, particularly in lower priced desktops and
notebooks where competitors with well-recognized brand names (like
HP, Acer etc.) offer aggressively priced products and more relevant
feature sets.
2. Higher Average Prices for Dell Could Spell Additional
Share Losses
Dell's overall average selling prices have been higher than
those of its competitors, which appears to be a conscious decision
to realign its pricing strategy, concentrate on solution sales, and
drive a better mix of products and services. The decision is
hampering Dell's top-line revenue growth, however, as consumers
select more competitively priced Acer and HP products.
But Recent Sales Improvement Could Counter this Trend
Despite its recent loss of share to Acer and HP, Dell might be
regaining its position. For Q3'10, Dell increased PC shipments
by 9.3% over the same period last year (including notebooks,
netbooks, and desktop computers) while HP's sales declined by
0.2% and Acer's by 0.7% over the same period.
Among the top five manufacturers, Dell, Lenovo, and Asus saw
solid growth while HP and Acer dipped.
Potential Upside Scenario
We currently project declines for Dell's share in notebook and
netbook sales. However, if Dell is able to counter this
forecast and continue its recent sales improvement trend, there
could be a significant upside to the company's stock value.
To highlight this sensitivity, we estimate that a 3% increase in
Dell's market share of notebooks & netbooks through our
forecast period, vs. our current projection of a 1% decline, would
generate 10% upside to the
$19.25 Trefis price estimate for Dell's stock
.
However, competition stemming from the popularity of tablets
(including Apple's iPad) is a reason to be cautious regarding
upside from increased PC shipments. We've previously discussed
how tablets like Apple's iPad have cannibalized notebook sales (See
iPad's Influence on Mac Notebook Pricing
).
See our full company breakdown and estimates for key drivers
to Dell's stock value in the display below.
Our
complete analysis of Dell's stock is here
.